8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Dec 22, 2016)

Filed December 22, 2016For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) filed an 8-K on December 22, 2016, addressing investor inquiries received through November 11, 2016. The filing provides insights into the company's operational performance, market conditions, and strategic responses. A key takeaway is the explanation for a spike in August airfreight volumes, attributed to new business, existing account growth, and late summer product launches. The report also clarifies the reduced profitability in Canada and Mexico during Q3 2016, citing the strong U.S. dollar and a specific bad debt expense in Canada. Furthermore, the filing touches upon the company's cash position, emphasizing its policy of investing cash back into the business for working capital, real estate, technology, or acquisitions, rather than disclosing specific minimum cash levels. It also addresses the impact of the Hanjin bankruptcy, noting that while specific disruptions have normalized, concerns remain about the financial health of ocean carriers and potential for further consolidation. The company maintains its focus on gaining profitable market share, investing in people, processes, and technology, and adapting to a volatile rate environment.

Key Highlights

  • 1August airfreight volume spike driven by new business, existing account growth, and product launches.
  • 2Q3 2016 profitability in Canada and Mexico was negatively impacted by a strong U.S. dollar and a bad debt expense in Canada.
  • 3Expeditors maintains approximately $1 billion in cash, with a portion held in non-U.S. subsidiaries, prioritizing reinvestment in the business.
  • 4The company is monitoring the potential impact of a Trump presidency on global trade but remains focused on profitable market share growth.
  • 5While Hanjin-related disruptions have normalized, concerns persist regarding the financial health and consolidation within the ocean carrier industry.
  • 6Expeditors gained air market share in Europe during Q3 2016, supported by investments in operational leadership and sales programs.
  • 7The company believes it can achieve sustainable above-market volume growth without sacrificing yield, by focusing on operational efficiencies and strategic investments.
  • 8Expeditors is prepared to adjust for potential changes in the Fair Labor Standards Act, awaiting final resolution of a federal injunction.

Frequently Asked Questions

The spike in August airfreight volumes was primarily driven by a combination of new business and volume growth from existing accounts. Late summer product launches also contributed to this increase.

The reduced profitability in Canada and Mexico was attributed to the strength of the U.S. dollar, particularly against the Mexican Peso. Additionally, a specific bad debt expense related to a piece of business in Canada negatively impacted the third quarter results for that region.

Expeditors holds a significant cash balance, with approximately $1 billion on its balance sheet as of September 30, 2016, including $546 million in non-U.S. subsidiaries. The company's policy is to first invest this cash back into the business, which includes working capital for new customers, real estate development, technology upgrades, or potential acquisitions. They do not publicly disclose a minimum comfortable cash level.

Expeditors acknowledges the difficulty in predicting the impact of a change in administration on global trade. However, they are monitoring the transition closely and believe that any significant impact on global trade would likely affect the overall U.S. economy. The company's strategic focus remains on gaining good, profitable market share regardless of the external environment.

Expeditors believes that the specific disruptions directly related to Hanjin have normalized. However, they note ongoing consolidation within the industry and maintain concerns about the financial health of many ocean carriers. The bankruptcy did provide an opportunity for carriers to increase spot market rates, which Expeditors hopes will lead to improved financial strength for carriers, ensuring a healthy market with multiple options.